LINKEDIN 2 COMMENTMORE

 

In late April I attended a land auction in the rural Augusta area of Eau Claire County. Two parcels of land sold. One parcel was just over 100 acres with most of it farmland that consisted of well drained soils with above-average production for the area. The parcel did not have any buildings. Bidding was aggressive and the land sold for $5150 an acre to an area farmer. I was curious of how land sales are going in Wisconsin after attending this sale.

I found that the University of Wisconsin has a large amount of data, research, and study of farmland sales in Wisconsin. A major asset behind all of this research is A. J. Brannstrom of the University of Wisconsin Center for Dairy Profitability. There are huge amounts of data found on the website of the Center ranging from production data to farm management, and I would encourage readers to look into the website to see just what information is available.

In a paper from February 2017 titled “Wisconsin Agricultural Land Prices 2011-2016,” Brannstrom reviews the information the Wisconsin Department of Revenue gathers when collecting the transfer return tax fee at the closing of the real estate sale. The information from the transfer return is used as the source for the research paper prepared by A. J. Brannstrom. The report is 10 pages and provides land price averages and ranges. Land sale averages are broken down into districts used by the National Agricultural Statistics Service.

In 2016 Wisconsin Bare Ag Land sales averaged $4021 per acre. This is a 3.5% gain over 2015 and puts prices at a new high! In 2014 land prices had dropped 3%. Land prices vary greatly in Wisconsin. The amount of acres sold varies greatly and has dropped off 42% from the peak in 2012.

Why are farmland values continuing to hold strong in an economic environment that has brought declining commodity prices over the past 5 years? How do strong farmland values impact Wisconsin farmers?

Strong farmland values that continue to increase are great for farmers that are in the growing phase of their business. Increased values can be used to provide additional owner equity and serve as a borrowing base for additional land purchases and for expansion of buildings. Examples of expansion are larger grain drying facilities or free stall barns and parlors.

The number of acres of bare ag land sales in Wisconsin has declined since 2011. In 2011, 99,824 acres were sold and in 2016, 78,742 were sold. There could be many reasons for the decline in acres sold. When I worked as an Extension Agent in northern Wisconsin in the 1980s, there was a period when we had many prospective buyers with very little land for sale, and in just a few years we found many acres of land for sale and few prospective buyers. What other investment options are available at this point of time that offer great returns? What risks are investors or owners willing to take with their funds? Perhaps we have too many buyers for the acres that are available for sale?

Are there any negatives to increasing farmland values? Are there any negatives to decreasing farmland values? Often I see balance sheet trend sheets that show growth in owner equity, and in digging deeper I find that most or all of the growth in owner equity was made by assets growing in value and none or a small amount was actually equity earned via the functions of the farm operations earnings. This false sense of prosperity may drive management decisions that are not sound for the future of the success of the farm business. Rapidly increasing values in farmland may also create a barrier to entry for young farmers attempting to purchase farmland.

Declining farmland values can cause panic among producers and lenders. In the 1980s I worked with many producers that found their loans downgraded by their lender as farmland prices declined, and this resulted in increased loan rates, the cutoff of operating credit, and the producer in many cases leaving the farm business. It comes to a tipping point if too many producers begin to leave the business. In some Wisconsin counties I witnessed land values decline 65% or more in the 1980s. I remember working as a USDA loan officer in the 1980s attempting to restructure farm debt to keep families on the farm and stabilize rural communities from further decline. Many farms were owned by lenders, and the only buyers were those that were looking for fire sale prices.

Bob Panzer farms in Chippewa County, WI and is a retired lender that offers farm management consulting in the Midwest and Great Plains regions. He may be contacted at 920-539-8728.

LINKEDIN 2 COMMENTMORE
Read or Share this story: http://www.wisfarmer.com/story/opinion/columnists/2017/05/17/wisconsin-farmland-values/326832001/